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Auto Insurers “Discriminate” Based On Your Job and Salary. Fair or Foul?

by Darwin on July 28, 2013

There’s a “controversial” report out this week that’s got people up in arms about “discrimination” because several auto insurers were shown to use job status, education status and salary as a determinant in setting auto rates. Using a fake profile of a factory worker with a high school degree versus a plant supervisor with a college degree, they found that quoted insurance premiums were much higher from 5 of the 10 insurance companies they surveyed. The authors of the study from the Consumer Federation of America want to see insurance companies base rates solely on discreet driving factors like previous accidents, tickets, etc., and not on these seemingly unrelated factors. The claim is that this is a backdoor method of discriminating based on income and education levels, which presumably they correlate to race as well to make their claim of “discrimination”.

Why People are Outraged

So, expectantly, advocates for low-income Americans are outraged that not only are people with lower incomes being unfairly penalized, but with so many already driving without insurance due to the onerous costs, this type of treatment just pushes people further in that direction, resulting in uninsured accidents and further problems. It’s easy to see how this could be seen as discriminatory if these factors had absolutely nothing to do with driving outcomes. But do they?

Why This is No Big Deal

Personally, I don’t see why anyone should regulate what an auto insurer can charge prospective customers. There are several insurers that don’t use these factors (half in the study were found to NOT use these factors) and it’s a free market. Anyone can go online and compare quotes for their given situation and just go with the optimal insurer. I think this feigned outrage is a bunch of politically correct balogny, but makes for an interesting discussion nonetheless around correlation vs causation, statistics and the like. See, what if people with lower incomes and education levels are actually more prone to accidents, tickets, drunk driving and the like? After all, we all know it’s perfectly expected (and legal) for insurers to discriminate based on age. When I was 17 I paid through the nose for auto insurance. Why? Because America’s full of idiot impulsive teenagers that drive drunk, speed, break traffic laws and statistically – cause more accidents than older adults. Thus, rates drop each time you hit a new age tier. And females pay less as well. I didn’t see any data correlating education/income to driving outcomes, but I’m sure it’s out there somewhere. Maybe there’s a justifiable correlation.

But aside from whether the traffic data alone supports it, what if this is just their business model? After all, insurance companies make very little profit from the auto coverage side. They make a ton on selling life insurance, home insurance annuities and all sorts of other cross-promoted products. Who’s more likely to buy more higher-margin products, a highly educated high earner? I suppose it’s perfectly legal for a business to alter their pricing based on the clientele they’re looking to attract, as long as they aren’t using race, gender, religion, etc. to form that opinion. Since education and job status are not protected classes, it’s certainly not illegal. And given the alternatives available to people, I don’t even see it as unethical. After all, perhaps there’s a market for the other insurers that can drive more volume from people who feel they were unfairly priced out of the market by their competitors?

What I found especially odd about this story making headlines was that, well, the same exact study was conducted previously with almost the same results (Jan 2013). Instead of the factory worker/supervisor, they used a secretary/executive. And the companies didn’t change much either. So, are they going to release another “damning study” 6 months from now too?

Your Thoughts?

Fair? Unfair? Would You Ever Run a Business Which Might be Viewed as Discriminating Based on Income and Education?